|Don’t Give Up on the Mall
The mall may not be dead yet, it’s just changing.With Amazon gaining strength and everything from department stores to clothing chains announcing plans to close hundreds of locations, builders are pouring big bucks into retail projects.
Across the country, construction spending on shopping centers topped $1.6 billion in June, the largest amount since 2008 and the Great Recession. Builders have been especially busy working on malls, spending $404 million in April. Bloomberg reports it’s the second highest monthly total ever, according to Census data, coming in behind July 2008.
“Retail real estate is not down for the count – it’s catching its breath and adapting to a rapid pace of change,” says Situs RERC Director Dane Anderson. “Stores today need to provide an experience – look at Build a Bear Workshop or the Apple Store, for example. Retail property owners are pivoting toward a stronger fusion of leisure and traditional retail space. It is worth noting this is not just an e-commerce driven change; there is a socioeconomic factor as well. The millennial generation is more interested in paying for an experience than consuming a good.”
Situs RERC Retail IRR and Cap Rate Composition:
Many financial analysts have considered the retail sector to be struggling, with a relatively bleak outlook. However, based upon Situs RERC’s extensive experience in navigating through previous real estate cycles, we believe that there may be some opportunity in the retail sector, specifically in Class A assets and in markets that have seen strong post-recession economic recoveries. Increased competition and a focus on creating a unique, entertaining experience for customers have been a catalyst for success in the retail sector. Despite the increase in spread for the retail sector, many analysts believe that expectations created by this gap will not be met without an increase in earnings growth.
So at a time of rising store-closings, and the growing strength of Amazon, why is more retail space still being built?
First, it’s worth pointing out that this isn’t an entirely new dynamic. For the last two decades, retail development has outpaced population growth in most big metropolitan areas. That’s partly due to overexuberance, and partly in response to evolving consumer demand and competition. Category-killing big-box stores like Best Buy Co. or Bed Bath & Beyond Inc. anchored so-called power centers, increasing retail’s physical footprint while simultaneously siphoning off customers who would have bought their linens and big screen televisions from traditional department stores.
More recently, mall owners have been spending money to renovate existing properties in a bid to draw foot traffic. That often means demolishing excess space and making improvements to create room for restaurants, movie theaters and other attractions in a last-ditch effort to prolong the life of “brick-and-mortar” retail.
Says Situs RERC’s Anderson, “Even with Amazon’s growing power and the shift to online shopping, brick-and-mortar isn’t going to disappear. Amazon acknowledges this themselves with their entry into the retail space market via their Amazon Go concept store, Amazon Pop-Up stores, Amazon Bookstores, and their acquisition of Whole Foods.”
These Retailers Expected to Survive the Amazon Onslaught
We may look back on June 16 “as the day retail changed forever,” according to a report by investment research firm Morningstar.
That’s the day Amazon bought Whole Foods for a whopping $13.7 billion and sent investors scurrying from grocery stocks, as they prepared for Amazon to bring its affinity for razor-thin profit margins to the supermarket segment.
The story of Amazon is of a company steadily spreading into new product categories and crushing the competition, but Morningstar argues that Amazon’s reach does have its limits. Analyst R.J. Hottovy lists the following firms as “the most likely survivors” of Amazonization:
- Lowe’s: home improvement retailers benefit from the high price of shipping the bulky goods they have to offer;
- Costco: The bulk retailer benefits from its gasoline business, an item that Amazon’s Whole Foods doesn’t sell.
- Walmart: Even though America’s largest retailer fights Amazon head-on in most markets, Hottovy says Walmart’s sheer scale and close relationships with suppliers means it can compete on price.
read more: Axios
The Best Place for a New Warehouse? An Old Mall
The pressure for speedy online package delivery is prompting companies to look for distribution facilities closer to residential areas or highways.
Some of the best locations, it turns out, are dead malls.
Warehouse landlords say they like former malls because the shopping centers occupy swaths of space relatively close to where consumers live or near main highways.
But it isn’t easy to convert a mall into logistics space quickly. Developers say it takes a community ready to accept that the mall has failed as well as understanding that there are viable job opportunities in logistics real estate.
Meanwhile, the appetite for industrial space continues unabated. Roughly 247 million square feet of industrial space is expected to be delivered this year.
In North Randall, Ohio, Amazon.com Inc. is considering the site of the former Randall Park Mall as a fulfillment center, according to Port of Cleveland, a local government agency focused on spurring job creation and economic growth in Cuyahoga County. Amazon didn’t immediately respond to requests for comment.
In Mesquite, Texas, FedEx Corp. next month will open a 340,000-square-foot distribution facility on what once was the site of the former Big Town Mall. Located along U.S. Highway 80 in Texas, the mall declined after newer malls were built nearby. It was demolished in 2006 and the land was later rezoned for industrial use.
read more: WSJ
Baby Boomers Not Selling Are Choking the Housing Market
People 55 and older own 53 percent of owner-occupied houses, the biggest share since the government started collecting data in 1900, according to Trulia. That’s up from 43 percent a decade ago. Those ages 18 to 34 claim just 11 percent. When baby boomers were that age, they had homes at almost twice that share.
Public policy contributes to the generational standoff. Property-tax exemptions for longtime residents keep older Americans from moving. Zoning rules make it harder to build affordable apartments attractive to senior citizens.
“The system is stuck in neutral,” says the Collingwood Group Managing Director Tom Booker. “The impact of the financial crisis combined with the aging of America has resulted in baby boomers having a disproportionate share of homeownership. Difficult job markets from 2008 to 2012, coupled with reduced property tax rates that lock in homeowners in markets like California, are creating real barriers to people’s lives. Older homeowners can’t find housing that is both appealing and affordable, while younger buyers don’t have access to inventory. Property tax policy in this case has lowered the cost of new housing relative to existing housing so much that homeowners commute great distances to retain the benefit and now economics may be driving many to retire in place. This popular cap on property taxes has increased affordability but may have become as large a barrier to the normal function of the real estate markets as it was a benefit to strapped homeowners. The older homeowners benefit while young homeowners pay the price. … Is that the intent?”
Bloomberg reports in Lexington, Massachusetts, broker Dani Fleming offers pizza and refreshments to entice the mostly elderly homeowners to attend seller seminars on “how to unlock the potential of your home.”
In Alameda, California, east of San Francisco, 38-year-old Angela Hockabout, her husband and their two children live with her 76-year-old mother-in-law, who is holding onto the home because the real estate taxes are so low. Under the almost-40-year-old ballot measure Proposition 13, tax bills are tied to the property’s value when the house was purchased in the 1970s.
In Omaha, Nebraska, Bill and Peg Swanson, a couple in their late 60s, say they might move if they could find affordable single-family homes aimed at seniors nearby. Still, like many from their generation, they like aging in place, tending their garden of green peppers, kale and tomatoes.
“There are a lot of reasons to stay here,” Bill Swanson says. “We still enjoy putzing around the yard.”
That kind of thinking ends up costing young home shoppers such as Jake Yanoviak. After graduating from Carleton College in Minnesota with a degree in media studies, he now lives in West Philadelphia with his parents, an arborist and a director of a nonprofit. For a living, he does carpentry and helps paint movie sets. He’s looking at homes costing as much as $200,000 and may rent out rooms to friends.
Says Collingwood’s Booker, “Policymakers need to come up with solutions to fix this broken system now.”
Many Americans are Only Just Getting By — Housing Costs Get Part of the Blame
Despite a growing economy and the lowest unemployment rate in 16 years, things aren’t looking up for many Americans — financial fragility is especially an issue for people with low incomes and for minorities, according to the new 2017 Prosperity Now Scorecard.
“Since last year’s Scorecard, the big-picture indicators show that people may find it easier to get by — unemployment is down and poverty is down,” said Kasey Wiedrich, director of applied research at Prosperity Now (formerly CFED), a progressive public policy nonprofit. “But when you really look at whether people are able to get ahead, to achieve financial stability and build wealth, we’re not seeing improvements.”
The median net worth in the U.S. ($76,708) has not changed significantly over the previous three years, Prosperity Now noted. And nearly 20 million households (about 17%) have zero net worth or owe more than they own.
The U.S. economy, the Scorecard’s report said, has shown “signs of gaining momentum — but only for a lucky few.” It’s not quite a glass half empty/glass half full scenario. It’s more like a glass that’s mostly empty.
In the past year, median home values soared by 7.3% ($194,500 is the new median home value), but median income only rose by 3.9%. Meantime, 50.6% of all renters remain “cost-burdened” — they spend more than 30% of their income on housing. Consequently, the U.S. homeownership rate held constant at 63% last year. Yet foreclosures and delinquent mortgages fell and, Prosperity Now found, there was a 3.8 percentage point decline last year in the national rate of homeowners with high-cost mortgage loans.
In other words, said Wiedrich, “for people who don’t already own, homeownership is becoming less affordable.” And he adds “homeownership is the chief way of building wealth in America.”
read more: MarketWatch
Hot Housing Market Could Be Heading for a Correction
Americans have simmering concerns about overheated home prices and increasingly suspect the bubble will burst, and a housing price correction may be imminent, according to ValueInsured’s latest Modern Homebuyer Survey.
First, the positive indicators: Home prices are rising and inventory is low, keeping housing confidence on a positive trajectory. Additionally, nearly eight in 10 Americans (79 percent) still say homeownership is an important part of their American Dream. Thus, the ValueInsured Housing Confidence Index score remains stable at 68.7 on a hundred-point scale, up a single percentage point from April.
Although Americans are committed to homeownership, their confidence in buying now, and their expectation that homes will hold their current value, has measurably declined. Fifty-seven percent of American homeowners surveyed believe that homes in their area are overvalued and that current prices are unsustainable. That segment is up 7 percentage points since last quarter. These fears are especially evident among urbanites, with 65 percent of homeowners and homebuyers saying housing is overvalued and home prices are unsustainable.
Prospective homebuyers as a whole are also more wary. Sixty-three percent of all homebuyers and 72 percent of millennial homebuyers say they are concerned with timing the market and want to ensure they are “not buying high.” These new figures represent double-digit jumps from just three months ago.
“We see more homebuyers concerned with timing the market,” said Joe Melendez, CEO of ValueInsured. “This is especially true for millennials, who are more likely to switch jobs, relocate or need to upsize in the next few years. No one wants to buy at the peak and find themselves underwater as so many did a decade ago.”
‘Beverly Hillbillies’ TV Home Comes to Market for $350 Million!
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Word on the Platinum Triangle real estate street is that the epic Bel Air compound of recently deceased media tycoon A. Jerrold “Jerry” Perenchio is set to hit the market with an elephantine asking price of $350 million, making it the most expensive residential property available on the open market in the United States.
The massive mansion sat empty until the 1940s when it was acquired by hotelier Arnold Kirkeby whose family hung on to the property until 1986, during which time it was featured as the Clampett family’s Beverly Hills mansion on the 1960s sitcom “The Beverly Hillbillies.”
The 10.3-acre spread, known as Chartwell, is anchored by an imperial, limestone-faced chateau-style mansion of about 25,000 square feet designed by architect Sumner Spaulding in the 1930s for a property developer who built it as a gift for his wife who, unfortunately for him, hated its unabashed opulence and never moved in.
After it was acquired by Perenchio, über-tony French decorator Henri Samuel, whose clients include members of the Vanderbilt and Rothschild families, was brought in to oversee a multimillion-dollar refresh of the monumental manse. A joint press release from listing brokers at Coldwell Banker Global Luxury, Hilton & Hyland and Berkshire Hathaway HomeServices indicates the 18th century French Neoclassical-inspired mansion includes a “ballroom, world-class wine cellar, formal salon and period-paneled dining room.”
read more: Variety
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